Wisconsin bankruptcy filings dip to lowest level in eight years

Wisconsin bankruptcy filings dropped to their lowest level in eight years in 2015 as the employment picture continued to improve and tighter credit standards made it a little more difficult for some consumers to get into debt they can't handle.

Court records show there were 18,455 bankruptcy petitions filed in the state last year, down 11% from 2014.

It was the first year since 2007 — just before the Great Recession — that Wisconsin recorded fewer than 20,000 consumers and businesses declaring themselves insolvent. Bankruptcy filings peaked at almost 30,000 in 2010 and have declined steadily ever since.

In short, the level of bankruptcy in the state is returning to normal.

"I think it could go down a little bit more," said Madison bankruptcy attorney Claire Ann Resop, of Steinhilber, Swanson, Resop & Sipsma. "I don't expect it to go back up in the near future."

The reduction in bankruptcy filings in Wisconsin generally tracked with the situation nationally. There were 819,240 bankruptcy filings in the U.S. last year, a 10% decrease from 2014, according to the American Bankruptcy Institute.

Both nationally and in the state, the great majority of bankruptcy petitions were Chapter 7 filings, the type intended to give people a fresh start by wiping out debt such as overwhelming medical bills, utility bills and credit card balances.

During and after the recession, bankruptcy attorneys saw waves of trades people such as carpenters come into their offices to declare insolvency because the housing crash and near shutdown of the homebuilding market had left them with no work. Now, the state's unemployment rate is down to 4.3% — it peaked at 9.2% in 2010 — and workers in the trades are in demand as real estate values rise and homebuilding is recovering.

Job loss as a reason for bankruptcy is back to more-historical levels.

"Divorce, lost job, major medical — those are the big three. That hasn't changed," said Robert Waud, a bankruptcy attorney with Esser Law in Milwaukee.

Resop said even though bankruptcies are returning to more-normal levels, financial fallout lingers for many people whose jobs disappeared during the economic downturn.

While many more people are working than during the worst of the bankruptcy surge, there are some formerly well-paid workers who are making far less money — "creative, hardworking people who took a pretty heavy hit," she said.

"There is a huge segment of people who got hit hard in the financial crisis who used to be high-income earners who are no longer high-income earners but midlevel income earners, and actually grateful to be there at this point," Resop said.

Resop said the rebound in real estate values has helped restore some wealth to landowners who watched the price of property they owned drop during the downturn.

She said tougher standards for credit have helped keep some consumers out of financial trouble.

"Credit isn't as available as it used to be," Resop said. "It was too available in the past. People are more protected because the industry is not allowing as much irresponsibility with credit as it used to."

But that doesn't mean getting into a money mess is difficult, or that even wiping out prior debt with a Chapter 7 filing always puts a person on course to financial stability.

Bankruptcy attorney James Miller, of Milwaukee's Miller & Miller, said even though credit standards for some loans have tightened, "There seems to be an upswing in predatory lending." He cited online payday lenders and auto dealers with 20% interest rates on car loans as examples of debt still landing consumers in trouble.

Miller said some former college students also are filing Chapter 13 bankruptcies — which stop collection actions and allow a debtor to set up a repayment plan — to forestall making full, unaffordable payments on tens of thousands of dollars in private student loans. Student loan debt doesn't go away in a bankruptcy, but a Chapter 13 filing can keep collectors at bay for a few years.

The hope by former students? That within a few years, Congress somehow will address the student debt crisis.